FedEx Corporation (FDX, Financial) has reported a whooping 50% increase in net income, beating Wall street's expectations. For the period ending 28th February, FedEx reported a diluted EPS of $2.01, and a net income of $580 million. For the same period last year, the delivery company reported a diluted EPS of $1.23 and a net income of $378 million. According to a group of 14 analysts surveyed by Zacks Investment Research, the expected EPS was $1.88. The main reason for the increase in profits was the low fuel prices. Though the company may be shining in terms of profit, the revenue and the outlook looks dull.
Driving Forces
The reason for the increase in earnings during the holiday quarter was not only low costs of fuel, but also favorable weather coupled with the company's restructuring actions. FedEx had earlier announced that they had restructuring plans for their air-express sector. Latest technology was adopted for the air-fleet so as to improve the fleet's fuel efficiency. Besides, 2013 proved to be a bane as the company lost $125 million due to bad winter weather. The weather this year was favorable, and that proved to be a boon. The quarter ending 28th February saw share value decrease 1% in premarket trading.
Revenue Stats
The revenue of the Memphis-based company increased to $11.72 billion, equating to a 4% rise. For fiscal year-ending May, FedEx has estimated an EPS earnings between $8.80 to $8.95. The earlier estimation was $8.50 to $9. The company's CFO, Alan B. Graf, Jr. said that FedEx's financial reports will continue to show a rise due to variable incentive compensation accruals. Sales however reported a drop from $6.67 billion in 2013 to $6.66 billion this third quarter. The amount of domestic packages transported however saw an increase of 4%. The ground division transportation also saw an increase due to the company's digital efforts and higher base rates. Revenue for this sector rose 12% to $3.39 billion. Revenue for transportation through freight division also saw an increase of 6% to $1.43 billion. LTL (Less-than-truckload) revenue grew 3% along with daily average shipments. Frederick W. Smith, CEO, chairman and President of FedEx said that the company witnessed a very successful quarter since all the divisions saw an increase in volumes. The profit improvement programs which have been implemented by the company are bearing fruits, he said. The company had announced its plans last quarter to hire more 50,000 seasonal workers so as to ensure faster and timely delivery. Besides, the company has invested more in ground-shipping division.
What’s in it for Investors?
FedEx, in their annual report of 2014, stated that they focus on boosting shareholder value and are aggressively managing costs. The reported third quarter profit will surely increase market perceptions and investor's confidence in the company. The courier giant's stock value rose 60% in 2013. It seems that this trend is not going to slow down anytime soon. The company will pull off a hat-rick this year due to its new opportunities and transportation network. Given that its restructuring plans are on the way, investors can expect their share value to rise in 2015 and 2016. However, FedEx shares were down 2% at $172.72 in premarket trading. Investors are reacting negatively as of now due to the revenue miss. Estimated EPS for fiscal year 2015 has also been narrowed down. Hopefully everything will turn out to be in everyone's best interest in the long run.
